Saturday, October 25, 2008

Party Meeting: Keep Doing What You've Been Doing

The Chinese Communist Party held a high-profile meeting—the third plenum of the 17th party congress if you want to be precise—which focused on rural affairs. In the lead-up to the meeting, there were many expectations floated that watershed reforms would be issued. Much was made of the fact that 2008 is the 30-year anniversary of the 1978 reforms that broke up the failed farm commune system, awarded farmers leases to plots of land, and started China on its unprecedented economic boom.

The document released on October 12 goes on and on (the English translation is 22 pages in a Word document) about principles and strategies, etc. I do not see any major reforms here—it looks to me like a validation of strategies China has been pursuing in recent years.

The aspect that received the most attention leading up to and during the meeting was the prospect for giving farmers greater rights over their land, including the possibility of transferring it and consolidating land into bigger farms. I have not had the fortitude to plough through the entire plenum document but it appears to devote only a couple of paragraphs to land issues.

From the macro land-use perspective, there is a resolve to preserve and strictly control cropland. The document reiterates that the cultivated land area will not be allowed to decline below the “red line” of 1.8 billion mu (120 million hectares—they are about 1-2 million hectares above the threshold presently.) Cultivated land cannot be converted to another use until an equal area of land has been reclaimed or otherwise transformed into cultivated land. The new land cannot be in another province, county, or even a different prefecture. So if you want to build a golf course on cropland, you have to plough some hillsides or drain a lake in the suburbs to create new cropland to offset it. The document doesn’t get into these specifics. The document also commits to land “reclamation” explicitly and the above requirement seems to also imply an encouragement to plant crops on environmentally fragile land. (A big campaign in the 1990s and other earlier periods to boost grain production caused severe “dust bowl”-type wind and water erosion.) Elsewhere in the document there are seemingly contradictory statements about environmental protection, including environmental subsidies for farmers.

At the farmer level, there is language about strengthening farmer land use rights and registration and allowing farmers to lease, trade, or swap these rights. This practice is already widespread and there are many examples of farmers or companies that have assembled large scale farms by leasing land from neighbors. However, arrangements about land transfers are set at the local level and vary widely. What the document may do is to give a green light for the land use rights to be traded in villages nationwide. This may not have that much effect, though. Land use trading schemes have been developed in regions where there are strong incentives to do so because so many village residents have better things to do than farm. They form these schemes with little regard for national policy. The places where the schemes haven’t yet developed already are probably areas where there isn’t much incentive to do it.

The anticipated land reforms were expected to lubricate rural financial markets by giving farmers an asset to borrow against, but these hopes were squashed. In a press conference this week, Chen Xiwen, a top agricultural policy official, emphasized that it is not legal for farmers to use their land use rights as security for mortgage loans. They can use agricultural commodities, equipment, vehicles, and contracts with agribusinesses as security, but not farmland or rural houses. Chen emphasized that this is a social stability issue. He is afraid farmers will sell their land and have nothing to fall back on if things go bad. Moreover, rural banks already awash in nonperforming loans could be further drained of cash with a surge of bad farmer mortgages.

There’s lots more in the document—rural finance, cooperatives, maintaining “reasonable” commodity prices, modern agriculture, infrastructure, social services, etc. There is an important commitment to making city life easier and legal for rural migrants but not many specifics. But a quick scan indicates no really new or bold directions.